(Kommersant) – According to the Kommersant Daily, ALROSA is discussing dividend options for 2014-2015 with Russia’s Federal Property Management Agency. Despite its net loss incurred to the amount of RUB 12.55 billion in 2014 (under the IFRS), the company is ready to maintain shareholder returns at the 2013 level to keep its promise of stable payments. But as a result, ALROSA will have to reduce future dividends for 2015, the year in which the company is expected to gain a net profit of RUB 113 billion.
As the Kommersant Daily was told by two sources, ALROSA has been in correspondence with the Federal Property Management Agency regarding dividends for 2014-2015 since the start of this year, hoping to reach a final decision by the end of February. The problem is that the company will have a net loss of RUB 12.55 billion (having earned RUB 204.7 billion) under the IFRS in 2014 due to exchange rate difference, one of the daily’s sources said, which means that formally there should be no dividends. But ALROSA can still pay them.
There are three possible scenarios under consideration, according to the Kommersant. Under the first one, dividends for 2014 will be paid at the level of 2013 with a further deduction in dividend payments for 2015. In 2013, the shareholders of ALROSA received RUB 10.826 billion worth of dividends (RUB 1.47 per share). The dividend yield reached 4%. In case 2014 dividends will be maintained at previous levels, it will drop to 2%. ALROSA expects to gain RUB 348.2 billion in revenues in 2015 driving its net profit to more than RUB 113 billion. In this case, the company’s dividends (equal to 35% of profit) will reach RUB 39.7 billion at the rate of RUB 5.39 per share (making the dividend yield hit 7%). If payments will be split between 2014 and 2015, the miner’s dividends will amount to RUB 28.88 billion with a yield of 5%. Under the second scenario, the company will refuse to pay dividends for 2014 and will pay them in full in 2015. The third option is to cancel dividends for 2014, but pay them in half-year installments for 2015 (RUB 24.23 billion in the first half and RUB 15.48 billion in the second half).
In this case, ALROSA’s dividend yield will remain within usual levels for mining companies. Thus, Norilsk Nickel posted a dividend yield of 7% in 2013, while it was 4% at Evraz, 3% at Polyus Gold and Severstal and 1% at Polymetal.
ALROSA refused to discuss its dividend policy at this stage. "All the company’s financial results are known to the representatives of its shareholders, so the final decision will be taken by them," the diamond miner explained. However, the Kommersant’s sources at ALROSA say that the company is inclined to the first scenario. "For a number of ALROSA shareholders, such as, for instance, Yakutia and its uluses [municipalities], dividends appear to be a significant part of their local budgets, and it would be wrong to completely deprive them of payments in 2014," says a source close to ALROSA. The largest shareholders of the company are the Russian Federation (43.9%) and Yakutia (25% plus 1 share). ALROSA, which completed an IPO in the autumn of 2013, has 67 shareholders, including 58 foreign ones. The Kommersant’s source in the Federal Property Management Agency said that "the agency always welcomed the willingness of the company to pay dividends, if it had the necessary resources and cash flow."
Sergei Donskoi of Societe Generale believes that ALROSA, like most Russian commodity companies, having predominantly export earnings in foreign exchange against their production costs in rubles, benefits from the national currency devaluation. Therefore, the analyst continues, ALROSA could gear its dividend payments to its financial performance without taking into account non-cash write-offs and foreign exchange rates – in much the same way as it is, for example, being already done by Severstal, MMK, Nordgold and Polymetal. According to Mr. Donskoi, the option of paying 2014 dividends comparable to 2013 looks to be a compromise: while the dividend yield may be low, it should be remembered that ALROSA’s management assured the company’s investors after the IPO that dividend payments would be stable, so to completely cancel them could seriously disappoint the market.
